Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 154852

October 21, 2004

MULTINATIONAL VILLAGE HOMEOWNERS ASSOCIATION, INC. and DANILO F.

CUNETA, petitioners,
vs.
ARA SECURITY & SURVEILLANCE AGENCY, INC., Represented by THERESA C.
MAMAED, President and General Manager, respondent.
DECISION
PANGANIBAN, J.:
Basic is the rule that a contract constitutes the law between the parties. The mere grant to one
party of the right to terminate the agreement because of the nonpayment of an obligation
established therein does not ipso facto give the other party the same right to end the contract on
the ground of allegedly unsatisfactory
service. Concededly, parties may validly stipulate the unilateral rescission of a contract.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the October
11, 2001 Decision2 and the August 12, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR
CV No. 62431. The assailed Decision disposed as follows:
"IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby AFFIRMED
with MODIFICATION to read as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the [respondent] and as against the [petitioners], ordering the latter to pay the
[respondent] jointly and severally the following amounts:
1. P591,250.00, as actual damages;
2. P30,000.00, as attorneys fees; and
3. Costs of the suit."4
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The antecedents are summarized by the appellate court as follows:

"In the Complaint filed below, it is alleged that Ara Security and Surveillance, Inc. [(Ara)]
was hired by Multinational Village Homeowners Association, Inc. [(Multinational)] to
provide security services at the Multinational Village, Paraaque, Metro Manila. Their
agreement was embodied in a document, entitled Contract of Guards Services dated
May 30, 1994. The contract was to take effect for a period of one (1) year from May 25,
1994 up to May 25, 1995 on a monthly fee of One Hundred Seven Thousand Five
Hundred (P107,500.00) Pesos, payable every 15th and end of the month without need
of demand. Under the same contract, Ara will provide Multinational with thirty (30)
guards.
"Not long after, on August 29, 1994, Danilo F. Cuneta, President of Multinational, wrote
Ara a letter terminating the aforesaid contract effective 1900 hours of August 31, 1994,
having found the guards services to be unsatisfactory, for repeated violations of the
Security Guards Code of Ethics and Conduct, and total disregard of the General Order
causing loss of confidence in the ability of the security guards to comply with the terms
of the contract. Ara replied requesting Multinational to reconsider its position, which fell
on deaf ears. Thus, on September 13, 1994, Ara commenced the present suit for
injunction with preliminary injunction, preliminary mandatory injunction and temporary
restraining order with damages.
"On September 15, 1994, a temporary restraining order was issued enjoining
Multinational, their agents and all persons acting in their behalf from enforcing the letter
dated August 29, 1994 and [from] replacing the guards with another agency. The
injunctive relief was then set for hearing.
"Summons having been served properly, Multinational submitted an Answer together
with an opposition to the injunction claiming that it has the right to pre-terminate the
contract under paragraph 5 thereof stating:
"5. MODE OF PAYMENT:
For and in consideration of the above services and during the effectivity
of this Contract, the CLIENT shall pay the SECURITY COMPANY the
sum indicated in the hereto attached cost analysis per month which
consideration shall be paid every 15th and end of the month without need
of demand.
The CLIENT hereby agrees that it shall pay interest on accounts covered
by billings received by the CLIENT and unpaid for thirty (30) days or more
at the rate of 24 per cent per annum. This shall be without prejedice (sic)
to the right of the SECURITY COMPANY to terminate this contract
immediately, for failure of CLIENT to pay the aforestated consideration in
accordance with its terms without notice.
The SECURITY COMPANY shall be entitled to an automatic adjustment
of its stipulated contract price in (sic) event that the minimum wage
increase[s] (sic) or in favor of the guards are promulgated by law,
executive order, decree or wage order subsequent to the execution of this
contract. Said adjustments shall be equivalent to the amount of increase

in the minimum wage of the amount benefits promulgated or both as the

case may be.
Billing shall be every fifteen (15) days. After three (3) months of
satisfactory performance, the parties may negotiate for the
extension of this contract and other matters that might be
advantageous to both parties."
"Meantime, after hearing the trial court denied the prayer for the issuance of a writ of
preliminary injunction on February 16, 1995.
"Finally, on December 14, 1998, the court a quo rendered its decision."5
Ruling in favor of Ara, the trial court ordered Multinational to pay the following:
1. P701,137.50 as actual damages
2. P200,000.00 as exemplary damages
3. P50,000.00 as attorneys fees
4. P20,000.00 as and for costs of suit and expenses of litigation
Unsatisfied, petitioners appealed to the CA.
Ruling of the Court of Appeals
The CA held that petitioners had breached their Contract when they pre-terminated it on the
basis of paragraph 5 thereof. According to the appellate court, the said provision did not provide
for a pre-termination option, but was "a mere superfluity with no clear meaning."
Furthermore, the CA ruled that petitioners had no good and valid ground to pre-terminate the
Contract, because the documentary evidence6 they had presented was hearsay and of no
probative value.7
Consequently, the appellate court affirmed the lower courts findings, but reduced the award of
actual damages toP591,250 representing payment for services rendered for five and a half
months at P107,500 per month. It also deleted the award of exemplary damages, saying that
respondent had failed to present evidence justifying the grant thereof.8
Hence, this Petition.9
The Issues
In their Memorandum, petitioners raise the following issues for our consideration:
"1. Whether or not the lower erred in finding respondents position as the more
acceptable interpretation of the contract in question that the contract cannot be
terminated even after three months of unsatisfactory performance.

"2. Whether or not the lower court erred in ruling that petitioners failed to establish that
the termination of the contract was for legal cause.
"3. Whether or not the lower court erred in declaring that [petitioners] committed breach
of contract."10
The issue is simply whether the pre-termination of the Contract was valid.
The Courts Ruling
The Petition has no merit.
Main Issue:
Interpretation of Paragraph 5
The last portion of paragraph 5 of the Contract of Guard Services between petitioners and
respondent provides:
"Billing shall be every fifteen (15) days. After three (3) months of satisfactory
performance, the parties may negotiate for the extension of this contract and other
matters that might be advantageous to both parties."11(Italics supplied)
Petitioners argue that the above stipulation in the Contract of Guard Services is a resolutory
condition. They allege that under this paragraph, the Contract can no longer be enforced after
the three-month period if the guards performance is unsatisfactory.12
They further theorize that since respondent was given the option to end the Contract upon their
failure to pay in accordance with the specified terms, they are likewise entitled to the option of
terminating the agreement on the basis of allegedly unsatisfactory performance.13 They add that
it would be unjust to compel respondent to continue with this Contract despite the security
guards ineptitude, which poses a danger to the lives and properties of the home owners.14
Petitioners contentions are not convincing. A reading of paragraph 5 yields the simple and
natural meaning that the parties may extend the Contracts life upon mutual agreement. The
appellate court was correct in holding that the provision was a mere superfluity. The parties
need not provide that they may extend the Contract should they mutually agree, because they
may do so with or without this benign provision. Although paragraph 5 mentions extensions, it is
ominously and significantly silent on the matter of pre-termination.
True, parties may validly provide for resolutory conditions and unilateral rescission in their
contract. However, paragraph 5 is not a resolutory condition, as it is not one that constitutes "a
future and uncertain event[,] upon the happening or fulfillment of which rights which are already
acquired by virtue of the obligation are extinguished or lost."15
Under paragraph 5, the clause "satisfactory performance" is expressly and clearly a
consideration for extending the life of the Contract. However, in the same paragraph, there is no
mention of the effect of unsatisfactory performance.

In the absence of any stipulation or provision of law on the matter, petitioners cannot be deemed
to have the contractual right to pre-terminate the Contract unilaterally as of August 31, 1994, on
the ground of the allegedly unsatisfactory performance of the security guards. Such
interpretation is a direct contravention of paragraph 12, which clearly states that the term of the
Contract shall be one year:
"12. TERM OF CONTRACT:
"This Contract shall take effect on May 25, 1994 and shall be for a period of One (1)
Year from said date. Thereafter, it shall be deemed renewed for the same period unless
either party notifies the other in writing not later than one (1) month before the expiry of
its intent not to renew.
"x x x

xxx

xxx

"14. Either party may terminate this contract for legal cause by written notice given to the
other party not later than thirty (30) days prior to the expiry date."16
The cases -- Pamintuan v. CA17 and Viray v. Intermediate Appellate Court18 -- cited by petitioners
to support the alleged existence of a resolutory condition are not applicable to the present
controversy. In the cited Decisions, the obligations under the lease Contracts as well as the
consequences of the lessees failure to comply with those obligations -- particularly, rescission
and the landlords taking possession of the leased premises -- were clearly set forth in the law
and in the Contracts, respectively. Thus, it was clearly discernible in those cases that the failure
to comply with the contractual obligations constituted a resolutory condition.
The foregoing situation does not obtain in the present case. The consequence of unsatisfactory
performance is not specified in the Contract of Guard Services. There is no stipulation
permitting petitioners to terminate the Contract upon an unsatisfactory performance of the
security guards. Paragraph 5 cannot be deemed to be a resolutory condition.
The contention of petitioners that the grant to respondent of the option to terminate gives them
the same right is a non sequitur. As they themselves argue, parties may validly provide for
unilateral rescission in a contract.
Next, petitioners contend that the court a quo did not comply with Section 11 of Rule 130 of the
Rules of Court, because it failed to give effect to paragraph 5. They further invoke Section
1219 of the same Rule, arguing that relative to the provision of the Contract on the duration of its
effectivity, which is one year, paragraph 5 is a particular provision.20 They conclude that since
the two provisions are inconsistent, paragraph 5 -- being the particular provision -- should
prevail.
Section 11 of Rule 130 of the Rules of Court states that "[i]n the construction of an instrument
where there are several provisions or particulars, such a construction is, if possible, to be
adopted as will give effect to all." Contrary to petitioners contention, paragraph 5 is not
inconsistent with paragraph 12. More important, the former does not in any way deal with the
termination of the Contract. Neither does it provide for a right to rescind.
At this point, we stress that the right to rescind is implied in reciprocal obligations, as provided
for in Article 1191 of the Civil Code, which states:

"ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
"x x x

xxx

x x x."

Therefore, absent any provision providing for a right to rescind, the parties may nevertheless
rescind the contract should the other obligor fail to comply with its obligations.
As correctly held by the CA in the instant case, petitioners failed to produce evidence of the
alleged breach of obligation by respondent. The investigation made by Petitioner Danilo F.
Cuneta cannot stand as competent evidence. The Letter-Complaints presented in court were
neither identified, nor were their contents affirmed, by their authors. Therefore, insofar as they
purport to prove that the security guards were remiss in their duties, the Letter-Complaints are
hearsay and inadmissible evidence.21 In Desierto v. Estrada, we held as follows:
"Evidence is called hearsay when its probative force depends, in whole or in part, on the
competency and credibility of some persons other than the witness by whom it is sought
to produce it. There are three reasons for excluding hearsay evidence: (1) absence of
cross examination; (2) absence of demeanor evidence, and (3) absence of the oath."
Finally, it is a settled principle of law that rescission will not be permitted for a slight or casual
breach of a contract, but only for such breaches as are so substantial and fundamental as to
defeat the object of the parties in entering into the agreement.22 Petitioners failed to produce
evidence of any substantial and fundamental breach that would warrant the rescission of the
Contract.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.
SO ORDERED.
Sandoval-Gutierrez, Corona, Carpio Morales, and Garcia, JJ., concur.
Footnotes
1

Rollo, pp. 9-22.

Id., pp. 42-53. Twelfth Division. Penned by Justice Conrado M. Vasquez Jr. (chair), with
the concurrence of Justices Martin S. Villarama Jr. and Sergio L. Pestao (members).
2

Id., p. 63.

Assailed CA Decision, pp. 11-12; rollo, pp. 52-53.

Id., pp. 2-4 & 43-45. Citations omitted.

Letter-Complaints against the guards of Ara.

Assailed Decision, pp. 10-11; rollo, pp. 51-52.

Id., pp. 11 & 52.

The case was deemed submitted for decision on August 26, 2003, upon this Courts
receipt of petitioners Memorandum, which was signed by Atty. Benjamin V. Aritao.
Respondents Memorandum, signed by Atty. Vicente S. Pulido, was received by this
Court on August 5, 2003.
9

10

Petitioners Memorandum, p. 4; rollo, p. 114.

11

CA Decision, pp. 5-6; rollo, pp. 46-47. Citation omitted.

12

Petitioners Memorandum, p. 6; rollo, p. 116.

13

Id., pp. 9 & 119.

14

Id., pp. 12 & 122.

15

Jurado, Comments and Jurisprudence on Obligations and Contracts (1987), p. 101.

16

Id., pp. 6 & 47. Citation omitted.

17

42 SCRA 344, November 29, 1971.

18

198 SCRA 786, July 4, 1991.

"Sec. 12. Interpretation according to intention; general and particular provisions. In the
construction of an instrument, the intention of the parties is to be pursued; and when a
general and a particular provision are inconsistent, the latter is paramount to the former.
So a particular intent will control a general one that is inconsistent with it."
19

20

Petitioners Memorandum, p. 10; rollo, p. 120.

Salonga v. Pao, 134 SCRA 438, February 18, 1985; People v. De la Piedra, 350
SCRA 163, January 24, 2001. See also People v. Manhuyod Jr., 290 SCRA 257, May
20, 1998; and People v. Quidato Jr., 297 SCRA 1, October 1, 1998.
21

Universal Food Corporation v. Court of Appeals, 33 SCRA 1, May 13, 1970; Roque v.
Lapuz, 96 SCRA 741, March 31, 1980.
22